A Record $118 Billion In US Debt To Be Auction Off In Final Week Of The Year

It wasn’t long ago that the US government had never even sold $100 billion worth of debt in a single week.

Now, in the final week of the year (and a shortened, holiday one at that), the Treasury is set to auction off a record-tying $118 billion.

WSJ: With foreign buyers holding about half of the Treasury market, their continued appetite for government securities is essential in order to continue funding mounting budget shortfalls in the U.S. at historically low interest rates. The auctions will be the last offerings of Treasury debt for 2009, adding to a record net supply of $1.48 trillion for the year. They start Monday with $44 billion in two-year notes, followed by $42 billon in five-year notes Tuesday and $32 billion in seven-year notes Wednesday, all matching the amounts offered a month earlier.

Thinner trading conditions during the winter holiday season pose a risk for such large sales. But many market participants said the selloff of short-term notes last week has made them attractive again. The two-year note’s yield, which moves inversely to its price, traded at 0.96% Thursday. It has risen nearly 0.3 percentage point this month, while the yields on the five- and seven-year notes have increased by more than 0.5 point over the same period. U.S. markets were closed Friday for the Christmas holiday.

More power to the Treasury if it can continue to raise such large sums and relatively low rates. But eventually this debt will have to be rolled over, and if the predictions of Morgan Stanley and other comes true — sharply higher rates in the short term — then watch out!

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